Venezuela is betraying its friends to survive

Venezuela's President
Nicolas Maduro attends a meeting with presidents of the Unasur
regional group at the government palace in Lima, Peru, April 19,
2013.REUTERS/Enrique
Castro-Mendivil

To make it through 2015 without going into crippling default,
Venezuela must break promises that made it possible for late
President Hugo Chavez to build a strong relationship with Latin
American and Caribbean nations largely forgotten by the Obama
Administration.

And for the US, this is an opportunity to get back in the game.

The fundamental promise Venezuela must break is a program called
Petrocaribe.

The initiative sold Venezuelan oil to countries like Jamaica and
the Dominican Republic at rock-bottom prices with almost no
interest. It's part of what led countries that don't share the
ideals of Venezuela's unique brand of socialism to call Hugo
Chavez and current President Nicolas Maduro friends.

Venezuela can't afford this anymore. The country's inflation rate
has soared to more than 60%, people wait in line for days to find
basic goods like milk
and toilet paper, President Maduro's approval rating has
collapsed to below 30%, and his opposition — though fragmented —
is still taking to the streets.

HSBC

The culprit for Venezuela's woes is economic mismanagement as
much as it is falling oil prices.

Shuffling cash from here to there

While oil makes up 95% of the country's exports and over 60% of
its revenue, Venezuela has done nothing to solve these problems.

What it has done, however, is delay disaster by moving some money
around and asking for a little help from the friends Chavez made.
For example, the Dominican Republic managed to throw Venezuela
some cash by selling debt it owed Venezuela to Goldman Sachs.

"Venezuela has managed to increase reserves year-to-date despite
the collapse in oil prices," Barclays bank wrote in a recent
report. "Considering the average oil price of about $55/b (Brent)
in the first two months of the year, we estimate that Venezuela
could have registered a deficit on its cash flow close to $2.0bn
per month.

"Reserves have increased $2.2bn YTD, due to the payment of the
debt that the Dominican Republic had with Venezuela under the
Petrocaribe agreement ($1.9bn) and the issuance of Citgo debt
($2.5bn)."

Of course, the money Venezuela raised was supposed to be used to
pay for other debt coming due later this year, Barclays pointed
out. So come October/November there will be another fire sale —
that is, another round of broken promises.

Not the best timing for Maduro

That's unfortunate timing for Maduro and his party, who face
nail-biter elections this fall (the date has not yet been set).

"The available polls show that the opposition coalition MUD is
ahead by a wide margin ... This could place the National Assembly
under the control of the opposition," say analysts at HSBC. "In
fact, with all the rising social tension, the date of the
election is not even clear, and it might even be postponed."

A Venezuelan opposition
protester next to a barricade uses a slingshot against the
national guard in Caracas, February 27, 2004.REUTERS/Howard Yanes

If that happens, Venezuela's opposition will almost certainly
take to the streets again. And since Maduro has shored up his
support in the army by paying soldiers more than anyone else, the
horrific images that have been beaming around the world since the
winter of 2014 are likely to filter out of the country at a
steady clip.

Now we have Maduro in full anti-US-imperialism mode — a mode that
can only help him in his own country where anti-US sentiment is
high. This is when you see Venezuelan kindergartners drawing
anti-Obama pictures in classrooms (you gotta start them young on
the Bolivaran Revolution). Maduro has also used this as an excuse
to spend dwindling state funds
on weapons from Russia and China.

Reuters

It's time for Obama to be very charming

The US opportunity in all of this starts on April 10th, when
President Obama will travel to the Summit of the Americas in
Panama.

There, he could do two things.

First, he should issue a big clarification, according to former
US ambassador to Venezuela Patrick Duddy.

Reuters

"The United States should remind regional governments that the
current U.S. sanctions target individuals, not the country as a
whole," Duddy
wrote for the Council of Foreign Relations. "US officials
should stress that the United States remains the largest market
for Venezuelan oil and has sought to avoid measures that would
impose greater hardship on the Venezuelan people."

Then, he should make some friends himself. Back in January, Vice
President Joe Biden led a meeting of the Caribbean Energy
Security Initiative, where he laid a bit of groundwork for that
while discussing energy independence.

"The ... combination of ... low oil prices, plus the plummeting
costs of renewable energy gives us a moment, a window here where
we will get significant support from the American public because
we are doing better to invest more overseas and overseas is just
across the water into the Caribbean," said Biden. "We are in a
position that I think we should understand there’s a sense of
urgency that we take advantage of the opportunities."